PPP Network, 17-May, discusses prospects for PPPs in video conference,

 eConference for PPP Practitioners:

Theme:  Public and private perspective on medium term prospects for PPPs,

Date:   17-May-2010

Contact:   Global PPP Network, WBI PPP Team,  mail@pppnetwork.ning.com

PPP Days 2010 brought together a record 280 PPP practitioners from 40 countries earlier this year in Manilla. Participants at this unique global gathering took stock of the impact of the global financial crisis on PPP programs over the last 18 months, and assessed the implications for governments that are implementing PPP programs.

Building on the discussion at PPP Days 2010, this 4-week eConference will invite a broader audience into the discussion and build on the expertise captured at PPP Days. Each week, participants will examine one key topic raised during PPP Days.

Theme 1: Public and private perspective on medium term prospects for PPPs, May 17-21, 2010

Theme 2: Institutional and governance aspects, May 24-28, 2010

Theme 3: Guarantees and government support mechanisms, May 31-June 4, 2010

Theme 4: Long-term financing, June 7-11, 2010

Each session will be moderated by members of the World Bank’s Global Expert Team on PPPs. Discussants will include speakers from PPP Days 2010 as well as invited experts.

You can participate in this eConference by sharing your thoughts on the key questions provided each week. Video clips and presentations from PPP Days 2010 are available for your review.

New members who wish to participate in the eConference can click vist the portal below to register to the network.

Visit Global PPP Network at: http://pppnetwork.ning.com/?xg_source=msg_mes_network

Following the discussions form the PPP Days 2010, we might suggest some criteria to evaluate the efficiency of Government responses to PPP financings (and refinancings) in the continuing financial crisis, which might include:

- Keeping the project pipeline “on schedule”, financing those projects which take a lot of time and cost to develop
- Insulating viable projects from (temporary) financial market volatility, to the extent possible without undue cost
- Minimizing contract risks for both the Government and the private concessionaires and banks
- Ensuring that the short term market requirements of bankability do not present a threat to long term budget sustainability

The distinction between project risks and market risks, as suggested by Larry Blain of British Columbia , is a good place to start the analysis, though very difficult to do in practice.

It is critical that project (commercial) risks remain with the concessionaires and their banks, while certain market (macro) can be assumed by the Governments (de-risking), with appropriate compensation or claw-backs for when the markets settle down.

But this distinction seems to be generally ignored, to judge by the recent emphasis of availability payments, in which traffic risk is retained by the Government. This shift in the allocation of the commercial risk (traffic volume or patronage risk) to the public partner has occurred not only in newly contracted projects, but ,most significantly, in refinancings of existing PPP contracts, some of which were reporting considerable traffic short-falls.

It appears that the delicate dynamics of the (re)negotiations can produce some rather undesirable outcomes from the public finance perspective. When it comes to providing any form of Government guarantee, advance with care, for the taxpayers’ sake.

Nevertheless, it would be useful to recall that all risks are not equal, as guidelines for the negotiators.

Projects or commercial risks should, as a rule, be taken by the concessionaires and their banks. They may include:
- traffic risk in general and in recessions, volume or patronage risk
- stakeholder and willingness to pay risk
- construction risk
- environmental risk
- inflation/deflation or risk/cost/price risk
- operating risk

Market (or macro) risks may be “de-risked”, may be retained by the Government or public partner, with appropriate compensation and claw-back. This reflects the trend to generally higher funding costs due to the credit contraction. These risks may include:
- interest rate fluctuation risk on debt financing
- exchange rate risk
- bank’s cost of funds, negative carry
- funding availability gaps, integral financing and refinancing risk
- project and shareholders rates of return
- market disruption, market flex, syndication risk
Mariana Abrantes de Sousa,  PPP Lusofonia